'Trash-outs' become more common in Oregon

From the Oregonian:

Federico "Fred" Caprotta breaks into houses for a living, removes the contents and fixes up the homes for sale.
He marvels that neighbors hardly ever call the cops. In fact, what Caprotta does -- on behalf of big-name banks -- is quite legal.
Caprotta is a former real estate broker who bailed out of property sales when the market and profits collapsed. For nine months, seven days a week, he has supervised "trash-outs" in a trade more delicately known as property preservation.
Caprotta, 50, invested $70,000 with a partner in his Portland venture, Global Property Preservation. He thought it could be lucrative. But trucks break down. Pay comes late or not at all. Expenses rise. For all his effort, he's not making money.
Still, Caprotta prides himself on compassion for people losing their homes. After all, he's losing his own.
Windol Cador, of Duke Development in Portland, once did new construction but got into property preservation seven years ago. He has 10 guys in two crews.
Sometimes they spend five days working on one house. "We want the neighbors to be happy," Cador says.
Cador's crews put aside items of value for previous owners. "You find cool things," he says. "We recently found a whole printing press in a garage. One guy had a comic-book collection that he probably spent years collecting."
Some trash-out guys say they make real money.
Caprotta sees the foreclosure crisis as a giant game of musical chairs in which some people got caught without chairs. No one cried when the housing market soared, he says. Yet when excesses bring tragedy, he says, everyone blames someone else.
Caprotta says neither the government nor trillions of dollars will fix the situation. Instead, he says, it will take a "shift in consciousness ... where we put the hopes and safety of all of us ahead of the individual."
"Sometimes," he says, "that involves some personal sacrifice for the greater good of all."

Unemployment rate hits 9.9% in January

From the Oregonian:

Oregon's unemployment rate soared to 9.9 percent in January, its highest point in 15 years.
The Oregon Employment Department reported this morning that 214,809 people were jobless in the state last month, by far the highest number in any month since World War II. Oregon had 173,121 unemployed in December.
"It's worse than what I thought," lamented Oregon state economist Tom Potiowsky, whose state revenue forecast was already downbeat when he issued it six days ago.
"I didn't think it would be this large of a jump," he said.
The state's seasonally adjusted unemployment rate, up dramatically from a revised figure of 8.3 percent in December, is far higher than the national level -- 7.6 percent -- as six of Oregon's eight largest industrial categories posted job losses. The state shed 14,600 during the month.
Over the past six months, the state has lost an average of nearly 9,000 jobs every month.

Regular readers of the blog are not surprised by Potiowsky's bad forecast. The economy entered a recession in December 2007, here was his prediction a year ago for 2008:

“The chances of slipping into recession this year are bumping closer to 50 percent,” said state economist Tom Potiowsky.

Another month...another reduction

Charles Turner's flip project at 2356 NW Hoyt St took another reduction this month.

Original asking price: $1,195,000
First reduction January 2009: $45,000
Second reduction February 2009: $25,000

The investment has been reduced $70,000 or 6% and has been on the market for almost 5 months.

December Case-Shiller preview

From the Portland Business Journal:

Home prices set a new record for falling prices in 2008, according to Standard & Poor’s Case-Shiller index data released Tuesday.
The index reflects a three-month average for home prices in 10 and 20 markets and is published with a two-month lag.
For December, the index for the 20-city package that includes Portland recorded an average annual home price decline of 18.5 percent.
“The broad downturn in the residential real estate market continues,” said David M. Blitzer, chairman of the Index committee. “There are very few, if any, pockets of turnaround that one can see in the data. Most of the nation appears to remain on a downward path, with all of the 20 metro areas reporting annual declines.”
For Portland, a December index of 158.50 translates to a 13.1 percent annualized loss in home values. Home prices fell by an average of 13.4 percent in Seattle.
Portland’s index means a home worth $100,000 in 2000 now is worth $158,500.

Charles Turner notes that our market has fallen 15% from the peak in July 2007. I point this out because I want to give him credit for giving a more complete picture of the market. Good Job!

I'm still without Internet but I'll be back soon and I'll post more about the Case-Shiller number. One quick observation is that we have not reached the point of inflection yet. Case-Shiller numbers are smoothed to reduce deviations so we can look for this intermediate point in our search for the bottom.

UPDATE: PDX Outsider posted some graphs for us.

Local bank failure # 3: Silver Falls Bank

From the FDIC:

Silver Falls Bank, Silverton, Oregon, was closed today by the Oregon Department of Consumer and Business Services, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Citizens Bank, Corvallis, Oregon, to assume all of the deposits of Silver Falls Bank.
As of February 9, 2009, Silver Falls Bank had total assets of approximately $131.4 million and total deposits of $116.3 million. Citizens Bank did not pay a premium to acquire the deposits of Silver Falls Bank.
In addition to acquiring all of the failed banks deposits, including those from brokers, Citizens Bank agreed to purchase approximately $13 million in assets comprised of cash, cash equivalents, securities, overdraft loans, and deposit secured loans. The FDIC will retain any remaining assets for later disposition.
The FDIC estimates that the cost to the Deposit Insurance Fund will be $50 million. The Citizens Bank acquisition of all the deposits of Silver Falls Bank was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. Silver Falls Bank is the fourteenth bank to fail in the nation this year. The last bank to fail in Oregon was Pinnacle Bank, Beaverton, on February 13, 2009.

Note: I am in the process of moving and don't have any internet so please expect light posting this week.

Vancouver RMLS Market Action Report – January 2009

The Regional Multiple Listing Service released the Market Action Report this week and the median sale price for January 2009 was $208,400 this is a 16.6% decrease from the median sale price for January 2008.

The Vancouver residential real estate market peaked in July 2007 with a median sale price of $269,900. Prices have now fallen 22.8% from that peak.

Months of supply (total inventory/monthly sales) sits at 21.0 months compared to the 17.0 months of supply for the same month last year. A balanced market has about 7 months of supply.

The first graph compares the median and average sale price with the months of supply. Click on any graph for a sharper image.

The second graph shows the total supply of homes available for sale. This is simply a calculation of the months closed sales multiplied by the months of supply. There are currently 4,275 homes for sale; this is an increase of 2.4% from the same month the year before.

The third chart shows closed sales by month. There were 204 closed sales during the month; a decrease of 17.1% from the same month the year before.

The fourth chart shows new listings by month. There were 972 new listings during the month; an increase of 18.5% from the same month the year before.

The final graph shows how affordable the median priced home is for a family of four. History indicates the ratio is usually between 2.5 and 3.0. Prices would have to fall 2.8% from the current median for the ratio to reach 3.0.

JP's market analysis January 2009

One of the blog regulars, JP, planned to post the following analysis in the comments section but it deserves more room and attention. I’d like to thank JP for taking the time to share his thoughts with us.




JP's analysis...

As a mathematician, the analysis of the monthly RMLS report is always a pleasure. While it is my personal opinion that macro market conditions are very bad, I also look for bright spots in the market. Currently I do not see much-possibly the increase in pending sales, but that may be part of the normal trend.

Poor indicators include:
-The level of Inventory.
-Average prices are down.
-Median prices are down.
-Inventory in months has skyrocketed.
-Total Market volume (closed sales X average sales price) is very low--this suggests that liquidity is approaching zero.
Total time on market is up.

And my unscientific consumer sentiment measure is very low [=unfavorable]. Of course there will always be those who think the market is going up, and there will always be those who think the market is heading down. I don't know about your crystal ball, but mine is often foggy.

I invite questions and further observations about what the data might represent. There are often times when the data will not specifically include or exclude a possibility. Other times it is possible to exclude different possibilities from the data set. It is just as important to understand what the data does not say as it is to understand what it might suggest.

As always there is a tension between trend analysis and the Efficient Market Hypothesis (EMH). The EMH suggests that no matter how much past data you have, it’s impossible to predict a future event, and if you could predict these events, then it would already be priced into the market. This is a basic overview of the two theories—please do further research about this issue.

Also please do not take this as investment advice. This is not written to any one person’s individual circumstances. I am not suggesting that one go short or long. Personally, if I was going to invest in real estate, I’d look at the government backed Ginnie Mae, but your risk-reward may vary.

Let’s start by looking at pending sales and inventory in months, which is calculated by taking the active listings at the end of the month and dividing by the closed sales for the entire month.

Pending sales are going down, while inventory in months almost doubles every year.

Now let’s look at closed sales, average selling price, and total market volume (closed sales X average selling price).

Please note that the average selling price in January 2009 was essentially the same as January 2006, 36 months prior. I would guess that the prices are statistically the same ($500 difference on $297,000 = 0.17%).

REALTORs who have been in the industry for three years have experienced, on average, a pay cut of over 50%. Alternatively, if 50% of the REALTORs exited the industry, then on average the remaining ones would still be taking a pay cut.

At 732 sales are getting discrete enough that I will start considering whether or not an individual agent actually makes the same number of sales as in the past. If you take a constant field of 1,000 agent pairs, then on average each agent made 1.8, 2.0, 1.1, 0.7 sales during January 2006, January 2007, January 2008, January 2009 respectively. Thus given a constant field of 1,000 agents, some agents were clearly left without any sales during January 2009.

The law of demand suggests that as prices go down, quantity sold will go up, or, depending on elasticity, the quantity sold should at a minimum stay the same. In this market, we have both quantity sold going down and prices going down. Thus the demand curve has shifted to the left.

At the same time, the law of supply suggests that as prices go down, so should the quantity supplied. In this market, however, we are seeing an increase in supply as prices are going down. This is probably because of the length of the supply cycle. The supply cycle is probably 24 months or more. Thus once suppliers realize that prices are no longer attractive, it takes up to 24 months to stop the flow of new places onto the market. This added supply should suggest further price reductions, and so on until a new equilibrium point is reached.

Now let’s consider the sales of million dollar plus homes. As most of you know, I am tracking one in particular. My question is simple: How many million dollar homes (and I am going to use a number close $1,000,000) could sell given the RMLS statistics. I hope it is clear: Not many. There just isn’t much room in the total sales volume. Make whatever nice assumptions you wish, the bottom line is that not many million dollar plus homes sold.

PR suggested that the numbers need to be seasonally adjusted. While it is true that January is a low point on a historic basis, the numbers presented above concentrate on January from on year to the next, and January 2009 is very low in terms of quantity sold and total sales volume.

Using trend analysis, we can expect that sales will increase during the summer months, but given that the quantity of sales is at a historic low, it does not take much to suggest that the quantity of sales should increase. It should also be noted that at 732 sales, January 2009 was the worst month for many years. Again, this is in an environment of falling prices.

I am sure there is going to be some claim about the weather, so let me cover that too. The worst portion of the weather was in December 2008. Unlike December 2008, the majority of January 2009 was not very interesting on a climatologically basis. That being said, let’s review:


Possibly the drop in 2008 may be partially explained by weather. I am not sure that the entire drop in closed sales can be explained by the weather, but it might be difficult to dispute.

Possibly the drop in 2009 may be partially explained by weather, but keep in mind that those who really wanted to list in December 2008 could have listed in January 2009—possibly these sellers are delaying until February 2009? Even if the weather had something to do with this, a lower number of new listings reduces the inventory in months, all other things being equal, yet the inventory in months is over 18.

Average selling prices have been declining since mid 2007, given a reasonable statistical error band (no, I didn’t compute one, but if you actually run statistical computations and find a different result, please post it in the comments).

Portland RMLS Market Action Report – January 2009

The Regional Multiple Listing Service released the Market Action Report this week and the median sale price for January 2009 was $250,000; this is a 10.7% decrease from the median sale price for January 2008.

The Portland residential real estate market peaked in August 2007 with a median sale price of $302,000. Prices have now fallen 17.2% from that peak.

Months of supply (total inventory/monthly sales) sits at 19.1 months compared to the 12.8 months of supply for the same month last year. A balanced market has about 7 months of supply.

The first graph compares the median and average sale price with the months of supply. Click on any graph for a sharper image.

The second graph shows the total supply of homes available for sale. This is simply a calculation of the months closed sales multiplied by the months of supply. There are currently 14,076 homes for sale; this is an increase of 1.2% from the same month the year before.

The third chart shows closed sales by month. There were 732 closed sales during the month; a decrease of 32.5% from the same month the year before.

The fourth chart shows new listings by month. There were 1,235 new listings during the month; a decrease of 26.1% from the same month the year before.

The final graph shows how affordable the median priced home is for a family of four. History indicates the ratio is usually between 2.5 and 3.0. Prices would have to fall 19.0% from the current median for the ratio to reach 3.0.

Local bank failure # 3 within a few weeks

From the Portland Business Journal:

Columbia River Bank has received a cease-and-desist order from the Federal Deposit Insurance Corp. and the Oregon Division of Finance and Corporate Securities that requires the bank to maintain higher capital levels, among other measures to improve its safety and soundness.
Among other meaures, regulators are requiring Columbia to:
• Maintain higher capital levels than normally required. Columbia must maintain a Tier 1 leverage ratio of at least 10 percent, starting in early May, which is double the normal level for a bank to be considered well capitalized. This rato was 6.29 percent at the end of December.
• Boost its total capital ratio to at least the 10 percent regulators require for a bank to be considered well-capitalized. This ratio was 8.75 percent at the end of December, and 8.5 percent at the end of September.
• Increase its allowance for loan losses by $25 million. This was done during the third quarter. The bank must also reduce commercial real estate loans and address its delinquent loans.
• Inform The FDIC before paying cash dividends. Columbia suspended cash dividends in the third quarter of last year.
The bank also sold its $7 million credit card portfolio for $7.8 million to Elan Financial Services of Pittsburgh, adding cash to Columbia’s balance sheet while removing some risk. The bank will still offer credit cards under its own name.

Investors also have doubt about the banks ability to continue as a going concern, the stock price is just above $1.00 per share
Here are a few other local banks with stock price problems:

West Coast Bank
Last quarter results: loss of 8.2 million
Current stock price: $2.05

Bank of the Cascades
Last quarter results: loss of 24.2 million
Current stock price: $1.49

PremierWest Bank
Last quarter results: loss of 3.1 million
Current stock price: $3.91

UPDATE: There is a little confusion around the title of this post. The bank has not failed…yet but it most likely will within the next few months. All of the banks on this list are in desperate need of capital and cash, with stock prices around $1.00 a secondary offer isn’t a viable option. Some are selling off portfolios in an attempt to get more cash (which is good because they are shrinking their balance sheet and expanding their ‘equity ratios’) but it probably will not be enough especially when most of your portfolios are real estate related.

Local bank failure # 2: Pinnacle Bank

From the FDIC:

Pinnacle Bank, Beaverton, Oregon, was closed today by the Oregon Division of Finance and Corporate Securities, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Washington Trust Bank, Spokane, Washington, to assume all of the deposits of Pinnacle Bank.
Due to the observance of Presidents' Day on Monday, Pinnacle Bank's sole office will reopen as a branch of Washington Trust Bank on Tuesday. Depositors of Pinnacle Bank will automatically become depositors of Washington Trust Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage.
As of December 31, 2008, Pinnacle Bank had total assets of approximately $73 million and total deposits of $64 million. In addition to assuming all of the deposits of the failed bank, including those from brokers, Washington Trust Bank agreed to purchase
approximately $72 million in assets at a discount of $7.6 million. The FDIC will retain the remaining assets for later disposition.
The FDIC estimates that the cost to the Deposit Insurance Fund will be $12.1 million. Washington Trust Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. Pinnacle Bank is the thirteenth FDIC-insured institution to fail in the nation this year, and the first in Oregon since Far West, Federal Savings Bank, Portland, was closed on May 23, 1991.

Southern Oregon home prices drop 40%

From the MailTribune:

Low housing prices are driving investors to White City, where the average number of days a single-family home stayed on the market dropped to 66 from 164 the same quarter a year ago, according to the Southern Oregon Multiple Listing Service.
Historically one of Jackson County's most affordable areas for housing, White City's median price for existing homes fell 10 percent, to $148,500, during the most recent quarter, Nov. 1 through Jan. 31.
"This is the first area you can get back into," said Stan Alexander, owner of DreamHouse Realty in White City.
"Investors can afford to buy at a price where the rent covers the mortgage payments. In recent years, you haven't been able to pay the mortgage with rents. Investors are
telling us that any time we find a good deal, call them immediately."
Countywide, the median price for existing homes dropped nearly 16 percent, to $198,000, from $235,250 the same period a year ago.
By some estimates, two out of five local home sales involved foreclosed properties during the past year.

Jackson county's median sale price was $325,000 in June 2007; it has fallen 39% since then.

Nike considers layoffs

From the Oregonian:

Nike executives said today they will unveil a restructuring plan this spring that will shed up to 4 percent of its 35,000 employees worldwide.
There was no word yet on how many of the 7,000 employed at the sportswear giant's Beaverton-area headquarters will be affected, company spokesman Bob Applegate said.
The company said a reorganization has been under way, but that it's speeding up now because of the recession. Nike instituted a hiring freeze and cut travel spending late last year.
"We, as a company, are affected by national and global economic conditions," Applegate said. "That said, it's important to stress this restructuring is something we've been engaged in, literally, for two years."
As part of the reorganization, Nike split into six, consumer-driven categories: soccer, basketball, training, women's training, running and sportswear. Layoff decisions will be based around those categories, Applegate said, taking into account job duplication.

U of O index: job losses will increase significantly in the first half of 2009.

Professor Duy released the U of O Index of Economic Indicators for December last week.

The University of Oregon Index of Economic Indicators™ continued its slide in December, falling 2 percent to 87.7 (1997=100). Compared to six months ago, the UO Index is down 10.8 percent (annualized). Weakness was widespread; six of the seven components of the index deteriorated.
The remaining indicator, U.S. consumerconfidence, was effectively unchanged.

As a general rule of thumb, a decline of 2.5 percent (annualized) over six months, coupled with a decline in more than half of its components, signals that a recession is likely imminent.

On the job market:

Oregon labor markets deteriorated in December. Initial jobless claims climbed even higher to a weekly average of more than 15,000 claims per month. Payrolls at employment services firms (largely temporary-help agencies) continued to fall and are now down 15.4 percent compared to year-ago levels. Total nonfarm payrolls (not included in the O Index) fell by 9,700 jobs in December.
Cumulative job loss since the February 2008 peak stands at 46,700; job losses will increase significantly in the first half of 2009.

On housing starts:

Residential housing permits fell in December to below 900, breaking a period of relative stability. Like much of the nation, housing markets are under stress as expectations of future price declines and tighter underwriting conditions outweigh the positive factor of lower interest rates.

I wonder how continued job losses figured into Conerly's imminent recovery.

Prediction: Economic recovery a few months away

From the Columbian:

Portland economist Bill Conerly predicts the beginnings of economic recovery for the U.S. in the second quarter. That’s sooner than some more pessimistic prognosticators, but Conerly expects a 1 percent growth rate in the nation’s Gross Domestic Product in the three months starting in April and an increase to about 3 percent by year’s end. However, he said, “We won’t feel normal for another year.” Conerly sees stock markets to turn upward soon as they anticipate a recovery, but “they don’t always do what they should,” he said.

I would give anything to see the market turn up but I don't see that happening in the foreseeable future.

Central Oregon's jump in unemployment one of the worst in the nation

From the Bend Bulletin:

Deschutes County’s unemployment rate increased by 5.2 percentage points over the past year, one of the biggest jumps in the country, according to a U.S. Bureau of Labor Statistics report released this week.
The Bend Metropolitan Statistical Area, which includes all of Deschutes County, saw unemployment increase from 6.1 to 11.3 percent from December 2007 to December 2008, the sixth biggest jump in the nation.
While the unemployment rate spiked in the past year, the county lost only 320 jobs during that time, according to state statistics. The real problem is the area’s population has grown without a commensurate increase in jobs, said Economic Development for Central Oregon Executive Director Roger Lee.
Deschutes County grew from 160,810 people in July 2007 to 167,015 in July 2008, according to Portland State University’s Population Research Center.
“We really haven’t lost many jobs at all, if you look year over year,” Lee said. “The phenomenon we’ve seen here is what happens all the time, is they move here without jobs.”
Many employers appeared to put off job cuts in 2007, hoping that the economy would turn around, said University of Oregon economics professor Tim Duy. Then last year, they couldn’t wait any longer.
“The reality began to sink in to more and more employers that this was not a short-term event, that this was a longer-term, deeper event than they anticipated,” Duy said. “They just could not resist cutting jobs further.”
Central Oregon’s fall reflects the region’s meteoric rise during the boom years, Lee said.
“It still is remarkable over a period of, say, the last eight years, something on the magnitude of 20,000 jobs were created in tri-county area,” Lee said. “We’ve come a long way. We definitely have come back to earth.”

$175 million state stimulus signed into law

From the Oregonian:

Barely a half-hour after the House voted it out Thursday morning, Gov. Ted Kulongoski signed into law a $175 million public works package that backers hope will start putting Oregonians back to work.
The contentious package is the first major act of the 2009 session, passed over strenuous objections from minority Republicans who said the plan digs Oregon further into debt and does little to counter a stubborn recession.
But Kulongoski, a Democrat, applauded his colleagues for their speedy work. With him at the signing ceremony were Senate President Peter Courtney, D-Salem, and House
Speaker Dave Hunt, D-Gladstone.
"With less than 30 days into this session, the Legislature crafted an economic stimulus plan that will put Oregonians to work in every corner of our state," Kulongoski said. "The state is prepared to move quickly to break ground on projects from Portland to Pendleton by April 1 of this year."

Umpqua bank takes a bath

From the Bend Bulletin:

A development that was conceived during the height of Bend’s housing boom but failed during its bust has gone back to the bank.
The Shire, a 15-lot, village-themed concept in the southeastern part of the city, was marked by its Old World housing styles and fantasy setting styled after J.R.R. Tolkien’s “Lord of the Rings” series. Umpqua Bank, which held a public auction for the property Dec. 29 that received no bids, foreclosed Jan. 16, according to Deschutes County property records.
The bank originally loaned $3.4 million to Lynn and Janet McDonald in December 2004. Lynn McDonald died July 7.
“We obviously made the loan based on knowledge that we had at that time,” said Lani Hayward, Umpqua’s executive vice president of creative strategies, based in Portland. “Umpqua is pretty good at doing its due diligence on those kind of deals. This was a new development starting at a time that was unfortunate.”
Umpqua has listed the 6-acre property — which includes 14 vacant lots and one partially completed house — for $1.3 million, said Brian Meece, principal broker with Steve Scott Realtors in Bend, the bank’s listing agent.

Mish does requests

I heard an Arbor Custom Homes commercial last week promoting home loans fixed at 3.875% for 30 years. I wondered how a local builder was able to swing such a deal...apparently Mish read my mind. He has his own theory about it.